It is one of a kind, however, it has all the security features as bonds offered in the Traditional Financial System and traded on stock exchanges such as NYSE. The bonds will be plain vanilla (an interest-bearing security paying coupons at regular intervals with a stated fixed maturity), meaning 100k bond with 5% yield will repay 5k per the interval, stated in the terms.
How it works:
A Financial Institution, willing to issue a bond through Credefi, goes through a due diligence process first, then we score their credit risk with Experian. Once the risk assessment is done we estimate the nominal value which can be issued. We always look at their balance sheet assets, which will serve as a collateral.
So, to illustrate, company X has credit assets for 5 million in their balance sheet, we estimate that the probability of default is 20% for the period of the bond, let’s say 3 years. So, the max issuance value would be 4 million with the collateral of 5 million. The yield repayment would be estimated of around 13% a year, for the three year period combined, would be approximately 40% return in exchange to the 20% probably of default. So 20% risk premium.
The bond is issued with the semi annual coupon rate, meaning every six month you receive 6.5% on the money invested, or, on the above example 260k.
Upon maturity the bond expires and repays the principal amount as well.
For the three year period the overall return on the investment would be 1.6 million and the total value repaid will be 5.6 million.
Again, all the figures are illustrative but the mechanism is this.